The government is having to increase incentives as remittance growth is hitting new records
The government's incentives expenditures are rising due to the high growth of remittance inflow.
The Ministry of Finance has approved the disbursement of Tk1,320 crore for incentives for the second quarter (October-December) of the current financial year – which is Tk555 crore more than the amount in the first quarter.
The government is currently giving incentives at a 2% rate against remittances coming in through legal channels. In the budget for the current financial year, Tk3,060 crore was allocated for this sector, with Tk765 crore for each quarter.
But the government is also having to increase the amount of incentives as remittance growth is hitting new records.
In the first four months of the current fiscal year, $8.83 billion came in through legal channels, which was 43% more than the amount during the same period last year.
Compared to the previous financial year, remittances increased by: 62% in July this year, 36% in August, 45% in September, and 28% in October.
In the first 12 days of November, remittances reached $1 billion. Never before has so much remittance come in during such a short time span. This trend of high growth in remittance inflow is expected to continue for a while.
Executive Director of the Policy Research Institute Dr Ahsan H Mansur does not think it is logical to give incentives to increase remittance inflow through legal channels.
He told The Business Standard it was more logical to reduce the value of the taka against the US dollar instead of give incentives. "This way, even if import costs increase a bit, it will be possible to make up for that by increasing exports."
However, migration expert Dr CR Abrar, who is a professor of international relations at the University of Dhaka, disagreed with Mansur, saying it was a very good initiative of the government to give cash assistance against remittances.
The high growth in remittance inflow, he said, was not just the result of incentives.
"Remittances coming through illegal channels have declined as normal communications and economic activities have come to a standstill due to the novel coronavirus pandemic. The total amount of remittances has now increased a lot as it comes through banking channels," he added.
The professor thinks this growth is temporary and cannot be retained once the novel coronavirus situation returns to normal.
Some banks are reportedly offering more than 2% incentives to attract expatriates in order to increase remittance inflow, but they are not willing to admit it.
Spokesperson for the Bangladesh Bank Md Serajul Islam said the central bank had no information about banks giving additional incentives outside the government rate. "In this regard, the central bank has no policy or guideline either."
Mansur sees no problem in extra incentives being given, saying banks can give such incentives as part of their own business strategies.
Meanwhile, work is underway to make provisions for remittance recipients to submit only the required documents to banks as part of making the process of sending remittances easier. At present, both senders and recipients need to submit the required documents to banks.
On 6 August last year, the central bank unveiled the policy to provide incentives or cash assistance for remittances sent through legal channels.
On 12 May this year, the policy was revised, and the amount of remittances sent without papers was increased from $1,500 to $5,000. Moreover, the time to submit incentives documents was increased from 15 working days to two months. This facility will remain in effect till December this year.
Some experts say to reduce government expenditures, it is necessary to consider whether it is possible to reduce the incentives rate or impose other conditions on expatriates who send more remittances.
The central bank's spokesperson said they have no such plan.